Golden parachute refers to a payment agreement for officers and management if they lose their jobs or face major changes to their jobs due to a sale of their company. Often when a public company faces a hostile takeover, the officers and management will lose their jobs. The golden parachute gives the officers and management security in these situations, but these payments are highly controversial. On the one hand, golden parachutes allow companies to make better offers to skilled officers, encourage present officers to pursue beneficial takeovers, and can be used as part of a poison pill strategy. However, golden parachutes also can cost hundreds of millions of dollars, arguably over-compensate officers, and discourage beneficial change. Recent litigation has surrounded golden parachutes as being a breach of fiduciary duties, but generally, golden parachutes are allowed if stockholders agree on the payment packages.
[Last updated in January of 2022 by the Wex Definitions Team]